The SP Corporation Makes 40,000 Motors to Be Used in the Production

question 199

Multiple Choice

The SP Corporation makes 40,000 motors to be used in the production of its sewing machines.The average cost per motor at this level of activity is: An outside supplier recently began producing a comparable motor that could be used in the sewing machine.The price offered to SP Corporation for this motor is $18.If SP Corporation decides not to make the motors, there would be no other use for the production facilities and none of the fixed manufacturing overhead cost could be avoided.Direct labor is a variable cost in this company.The annual financial advantage (disadvantage) for the company as a result of making the motors rather than buying them from the outside supplier would be:

• A)$276,000
• B)$86,000
• C)($92,000)
• D)$178,000

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Definitions:

Insourcing

Job creation through foreign direct investment.

Foreign Direct Investment

Investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets.

Market-Entry Strategies

Plans developed by businesses to enter new markets and establish a presence in them.

Global Sourcing

The purchase of materials or services from around the world for local use.